Personal Finance Crash Course: Comprehensive Cliff Notes

Type: Study Guide / Course Notes

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Course Overview

• Based on: KH Academy's Financial Literacy course (16 units)
• Scope: Comprehensive, foundational personal finance concepts
• Purpose: Equip you to become financially literate; self-assessment included

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Course Structure (16 Units)

1. Introduction
2. Budgeting & Saving
   • How to create/manage a budget
   • Saving strategies and rules (e.g., 50/30/20 rule)
3. Financial Goals
   • Setting SMART goals
   • Money personalities
   • Calculating net worth
4. Loans
   • How loans work, types of loans
   • Debt and bankruptcy
5. Debt
   • Approaches for repayment, good vs. bad debt
6. Insurance
   • Types of insurance (medical, property, car, life)
   • Key terms: premium, deductible, co-pay, claim
7. Investment & Retirement
   • Saving vs. investing
   • Compounding, retirement accounts (401k, IRA, etc.)
8. Scams & Frauds
   • Recognizing common scams
   • Protecting your personal information
9. Taxes
   • Types of taxes: income, sales, property, payroll
   • Deductions, credits, progressive vs. flat tax
10. Employment/Careers & Education
    • Cost-benefit analysis of education
    • Opportunity cost
    • Evaluating job offers
11. Banking
    • Types of banks/accounts (national, credit unions, online)
    • Checking, savings, CDs, investment accounts
    • Interest rates and inflation
12. Car Buying
    • Potential scams
    • Cost factors
13. Housing (Rent vs. Buy)
    • Factors to consider (financial and personal)
    • Example scenario calculation 14-16. Teacher/Additional Resources

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Key Concepts & Practical Advice

Budgeting

• Budget definition: Cash inflow and planned usage
• Popular method: 50% needs, 30% wants, 20% savings
• Savings priorities: Emergency fund (3–6 months of expenses), then large purchases or investments

Saving Tips

• Negotiate bills (utilities, cell, internet)
• Compare per-unit pricing on groceries
• Automate savings; use separate accounts for different goals

Credit & Credit Scores

• Score range: 300–850 (US/Canada context)
• Main factors:
  • Payment history (35%)
  • Credit utilization ratio (30%)
  • Length of credit history (15%)
  • Credit mix and new credit inquiries (10% each)
• Improvement tips: Pay on time, keep balances low, avoid opening many new accounts at once
• Credit cards: Useful for building credit and rewards, but risky if mismanaged (high APR)

Financial Goals

• Use SMART goals: Specific, Measurable, Achievable, Realistic, Time-bound
• Timeframes: Short (<1 yr), Medium (1–5 yr), Long (>5 yr)
• Financial Plan Components:
  1. Budget
  2. Savings plan
  3. Debt repayment plan
  4. Investment plan

Net Worth

• Formula: Net Worth = Assets – Liabilities
• Young people often start with negative net worth (e.g., student loans), goal is to become positive over time

Loans & Debt

• Types: Installment (e.g., mortgage), Revolving (e.g., credit cards)
• Interest (APR): Compare across offers
• Good debt: Investment for future (e.g., education, house)
• Bad debt: Drains stability (e.g., payday loans, excessive credit card debt)
• Repayment: Prioritize high-interest debt or use "snowball" method (smallest debt first)

Insurance Basics

• Purpose: Manage risk (avoid or transfer)
• Core terms: Policyholder (insured), insurer (company), premium (payment), deductible (out-of-pocket threshold), co-pay (partial payment), policy limit, claim, benefit

Saving vs. Investing

• Saving: Low risk, for emergencies/short-term goals (e.g., savings accounts, CDs)
• Investing: Higher risk, for medium/long-term growth (e.g., stocks, bonds, mutual funds)

Five-Step Financial Foundation:

1. Build a budget
2. Establish emergency fund (3–6 months)
3. Set SMART goals (short-, medium-, long-term)
4. Diversify investments
5. Review and adjust regularly

Investment Principles

• Risk vs. Reward: Higher return = higher risk
  • Low risk: Bonds, money markets
  • Moderate: Index/mutual funds
  • High risk: Individual stocks, crypto
• Compound interest: Start early; small, regular investments add up

Retirement

• Start early! (Example: steady, small contributions outperform larger, late ones)
• Accounts: 401k (employer), IRA/Roth IRA (individual, US context); check for local equivalents
• Employer matching: Free money, maximize if available

Scams & Frauds

• If it sounds too good to be true, it is.
• Never share sensitive personal data unless absolutely necessary.
• Be cautious, but don't miss real opportunities due to excessive fear.

Taxes

• Types: Income, sales, property, payroll, etc.
• Methods: Flat vs. progressive
• Key tools: Deductions, credits
• Frequency: Paid year-round, not just at "tax season"

Banking

• Bank types: National, regional, credit unions, online banks
• Accounts: Checking (everyday), money market/savings/CDs (higher interest with restrictions), investment accounts (stocks/funds)
• Interest rates vary; online/credit unions often higher but may have limitations
• Compound interest: Utilize for savings/investments

Inflation

• Definition: Rising prices; erodes money’s value
• Impact: Savings rates must outpace inflation to grow "real" wealth

Car Buying & Housing

• Car buying: Watch for hidden costs and dealer scams
• Rent vs Buy:
  • Analyze total cost over time, including opportunity cost of invested down payment
  • Consider non-financial factors (flexibility, stability)

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Overarching Lessons

• Prioritize budgeting, emergency savings, and debt management before investing.
• Understand your financial personality and adjust strategies accordingly.
• Don’t fear all debt or investment, but be proactive and informed.
• Learn to spot financial scams and avoid them without missing real opportunities.

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Self-Assessment/Reflection

• Can you:
  • Create & manage a budget?
  • Set, track, and achieve SMART goals across different timeframes?
  • Calculate your net worth?
  • Understand your credit score and how to improve it?
  • Identify types of debt and insurance appropriate for your situation?
  • Distinguish saving vs. investing, and diversify appropriately?
  • Analyze rent vs. buy for significant purchases?
• If yes: You are financially literate!

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Resources

• KH Academy (Khan Academy) courses: Free, comprehensive modules
• Further study: Use search/AI tools for details (e.g., country-specific retirement plans, debt repayment strategies)
• STEM/Math basics: Use platforms like Brilliant for foundational STEM skills important for financial literacy

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Note: For detailed tables, exercises, and calculators (e.g., mortgage calculator, credit score tracking), see the original course or attached resources.

End of Cliff Notes